In 2019, Vaughn sold 1000 units at $500 each, and earned net income of $40000. Variable expenses were $300 per unit, and fixed expenses were $240000. The same selling price is expected for 2020. Vaughn's variable cost per unit will rise by 10% in 2020 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10000. How many units must Vaughn sell in 2020 to maintain the same income level as 2019?

Question

Business

Tuck

28 April, 08:40

In 2019, Vaughn sold 1000 units at $500 each, and earned net income of $40000. Variable expenses were $300 per unit, and fixed expenses were $240000. The same selling price is expected for 2020. Vaughn's variable cost per unit will rise by 10% in 2020 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10000. How many units must Vaughn sell in 2020 to maintain the same income level as 2019?

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Demarcus Valenzuela · Answer 1

Vaughn must sell 1588 Units in 2020 to maintain the same income level as 2019

Explanation:

Selling price for 2020 = 500 per unit

Variable cost for 2020 = 300 x 10% + 300

= 300 x 0.1 + 300

= 30 + 300

= 330 per unit

Fixed cost for 2020 = 240000-10000

= 230000

Required unit = (Fixed cost+Net income) / Contribution margin per unit

= (230000+40000) / (500-330)

= 270000 / 170

= 1588.24

Required unit = 1588 Units